JIM CHALMERS:
Today's National Accounts show that Australia's growth is subdued but relatively steady in the face of higher interest rates, high but moderating inflation and ongoing global economic uncertainty.
The Australian economy grew by 0.2 per cent in the December quarter to be one and a half per cent higher through the year according to the ABS. Growth slowed over the year, but it held up in the quarter.
The economy grew a little but not a lot. Growth in our economy was quite weak, as we have expected.
Even weak growth is welcome growth in the circumstances. Slow growth is still significant growth given the challenging global conditions combined with the impact of higher interest rates here in our own economy.
Now, we need to remember that towards the end of the year, Japan and the UK both went into recession, around a quarter of G20 economies have recorded a technical recession or narrowly avoided one and it was only yesterday that the Chinese authorities said that they expect their period of softer growth to continue there as well.
Today’s numbers show that we are not immune from that global economic uncertainty, but our economy continues to grow despite all of these pressures. In fact, since the Albanese Government came to office, Australia has now recorded the second biggest economic expansion and the fastest employment growth compared to the major advanced economies. But we do know and we do acknowledge that many people and small businesses are still doing it tough, and we see the impact in these numbers of cost‑of‑living pressures which are continuing to bite. You see the impact in these numbers from higher interest rates. You see that particularly in the rising mortgage interest costs captured in the data that is released today, you see that flow through to the household consumption data which is, again, quite weak – growing just 0.1 per cent in the quarter and 0.1 per cent through the year as well.
But today’s figures also show – and this is one of the encouraging elements – is that Australians are earning more, and in the quarter they’re keeping more of what they earn as well. Wages per employee grew 0.4 per cent in the quarter to be 5 per cent higher through the year. Income tax payable fell by 3.3 per cent in the quarter and, as you know, workers will keep even more of what they earn when our cost of living tax cuts start from the 1st of July. The combination of wages up and income tax payable down a bit means that real gross disposable household income is now rising in annual terms and that’s important too.
Another really important element, another really welcome and encouraging element is what we’re seeing in these numbers when it comes to business investment. The National Accounts show the welcome turnaround in business investment under our government is continuing. New business investment has now grown every quarter since the election, remembering that it fell nearly two‑thirds of the time under our predecessors. Productivity now has also increased for two consecutive quarters – we’re obviously realistic about that – you don’t turn around decades of poor productivity performance in a couple of quarters, but it’s encouraging to see it tick up a little bit. We expect it to take some time to turn around that longstanding weakness in productivity growth that we inherited.
The National Accounts measure of consumer prices moderated to 4.6 down from 5.6, and that’s broadly consistent with the moderation that we’re seeing in the Consumer Price Index as well.
Addressing inflation is still our primary concern, but these numbers show that the balance of risks in our economy are shifting from inflation to growth. We also expect that a slowing economy will have implications for revenue, meaning smaller revenue upgrades than we have become accustomed to in the budgets that we’ve handed down so far. Those first two budgets were carefully calibrated to the economic conditions, and that will be the guiding principle behind the third budget that Katy and I hand down in May as well.
In challenging times the Albanese Government’s economic plan has three parts: it’s all about relief from cost of living pressures, repair of the budget and our supply chains, and reform which lays the foundations for future growth and these numbers that have been released this morning show how important that three‑part strategy is.
JOURNALIST:
Thanks, Treasurer. [Indistinct] given these numbers, what are you expecting this quarter to look like?
CHALMERS:
This March quarter that we’re in now? We’ll obviously weigh up the data as it comes in throughout the quarter. We’re still expecting growth in our economy to be relatively weak for all of the reasons that I’ve run through but I’m not going to make a prediction about March on the day that we receive the December quarter data.
JOURNALIST:
Income tax per capita is up almost 13 per cent over the past year, and economists don’t expect household income, disposable income, to recover until about 2027. Is there a case for stage four tax cuts? And then just separately, will Paul Keating’s remarks about Penny Wong [indistinct] ASEAN [indistinct]?
CHALMERS:
We’re very conscious of the pressure on incomes, that was one of, I think, the defining failures of the last decade of economic mismanagement – the fact that when we came to office, real wages were falling almost three and a half per cent, we’d had a decade of deliberate wage stagnation and people were under pressure. And so much of our economic plan has been about turning that around, and that’s why we’re so pleased to see, for example, real wages growth in our economy earlier than anticipated. We’re getting wages moving again, we’re seeing some welcome progress there, inflation is moderating, we’ve got the tax cuts coming on the 1st of July and that, as you’ve heard us say before, is all about ensuring that more people are working, more people are earning more and more people are keeping more of what they earn. That’s really one of the guiding lights of our economic policy.
I’m not here to foreshadow any future movements in income tax policy. Our priority was getting that through the Parliament, we’re absolutely delighted to see that happen. Despite all of the tough talk from our political opponents, it was, as I understand it, unanimous in both houses of the Parliament, even though Sussan Ley and others have said they want to unwind it. We’re not currently contemplating any further changes in income taxes. Our priority is rolling out these tax cuts from the 1st of July, because it means a bigger tax cut for more people to deal with these cost of living pressures and to help with one of our defining economic goals, which is to get take‑home pay stronger so people can deal with these cost of living pressures, provide for their loved ones and get ahead.
Your second question about the comments that Paul has made – I think you all know how much I value and appreciate my friendship with Paul Keating but that doesn’t mean that he’s always right. It would be strange if I agreed with 100 per cent of what Paul Keating says, and I disagree strongly with him when it comes to his comments about Penny Wong and also about Mike Burgess.
I think Paul is wrong about Penny, and I think he’s wrong about Mike, and I’m prepared to say that publicly and clearly. These are two absolutely outstanding people doing an absolutely outstanding job and all you will hear from me is full‑throated support for their important work. I don’t think that work should be undermined or diminished. I value my friendship with Paul Keating. He’s not always right, and I think on these two occasions he’s wrong.
JOURNALIST:
Treasurer, on the household savings ratio, that’s [indistinct] considerably up 2.2 per cent. [Indistinct] more money [indistinct]?
CHALMERS:
I think it’s a couple of things. First of all, it’s a quarterly shift in the household saving ratio, and we don’t get carried away by quarterly movements. But it is obvious that there has been a little tick up in household savings, and I think that reflects two things: incomes which are a little bit stronger, but probably more substantially people being a little bit more cautious because they understand there is all of this global economic certainty, they know that there are pressures in our own domestic economy as well. And for people who can afford to do that, I think they’re making allowances for all of that uncertainty.
JOURNALIST:
Treasurer, you just mentioned the fact that you’re expecting smaller revenue upgrades given these figures, and you’re talking about the budget having to swing to more support for growth. Is there a danger of adding to inflationary pressures by running a deficit in the next financial year? You’re already forecasting one, but I think most expectations have been around fairly substantial improvement, but you’re trying to pour a bit of cold water on that right now.
CHALMERS:
Well, what I’m trying to explain to yourself and your readers and to the Australian people is that we have been quite successful with an almost sole focus on inflation to this point. In the first couple of budgets, we know from the ratings agency and comments from the Reserve Bank – incredible commentators – that our efforts to get the budget in much better nick has played a role combined with our cost of living help, the way that’s been designed, in ensuring that inflation can moderate in our economy. So we had an almost sole focus on the inflation fight, and that will change over time inevitably.
Inflation is still our primary focus, I think it is still the main challenge in our economy, but what these numbers show today and the quite weak growth that we see in GDP in particular is that the balance will shift over time. And what I tried to say in the introduction a moment ago is when we sit down and put together these budgets – and this will be our third crack at it – when we do that, we try to make sure that we’ve got our budget settings and our economic policies as carefully calibrated as they can be to the economic conditions that we confront and if you look at these quarterly figures, you look at the way inflation is coming off in welcome and encouraging ways, we need to respond to that, so the balance will shift.
When it comes to the cash balance, we’re very proud, frankly, that we delivered the first surplus in 15 years and that wouldn’t have happened without the restraint and the responsibility that we demonstrated in those first couple of budgets. We will continue to be responsible when it comes to spending and when it comes to managing the budget. We’ve delivered that first surplus, we’re a reasonable chance of a second one, but I guess what I’m trying to convey to you is we will always try and do what is right by the economy and by our people and that will drive the final budget position that I release and Katy releases in May.
JOURNALIST:
Given what you just said there, Treasurer, about that shifting balance and risk, does that mean you’re more willing to spend between now and the election?
CHALMERS:
It shows we continue to be willing to do the right thing by the economy and particularly focused on the economic conditions that we confront. I think any person looking at these numbers today and looking at the way that inflation has come off in ways that were quicker, frankly, than many anticipated, we’ve still got this big inflation challenge – that still remains our primary focus, but we’ve got a growth challenge as well. Every budget tries to strike a series of fine balances and in this budget in May we’ll be balancing the fact that inflation is coming off in ways that we welcome, growth is slowing and we need to address both of those challenges at once.
JOURNALIST:
We can see in these numbers the RBA’s blunt instrument has clearly done its job. Is there hope for mortgage holders here? Do you think this builds the case for rate cuts sooner? And just also wondering you’re initial assessment on the Greens’ ambitious housing policy today?
CHALMERS:
Firstly on interest rates, I don’t like to disappoint you, but you know that I don’t second guess decisions taken independently by the Reserve Bank and I don’t pre‑empt or predict them either. The market has a pretty firm view about future directions in interest rates, and I’m not here to kind of quibble with that or second guess that either.
What is really clear is that inflation has come off quite substantially since its peaks in 2022 – that’s a good thing. We have done our bit when it comes to that – spending restraint combined with the right design of our cost‑of‑living help and obviously the Reserve Bank has played a role in that as well. I’ll leave you in the capable hands of Michelle Bullock to talk about how they approach these numbers that were released today and the inflation numbers and wages data that we’ve seen in recent times. For my part, it really comes back to the answers that I gave to some of these other questions about how we approach the combination of challenges that we confront now.
JOURNALIST:
Treasurer, you said even weak growth is welcome growth. What do you think of the state breakdown then? Does it concern you, then, that New South Wales and South Australia had minus 0.4, Victoria and Tas had zero?
CHALMERS:
I think quite frequently in these quarterly National Accounts data you get divergent results between the states and territories. It's obviously a smaller sample, it can be lumpier, it can often be impacted by projects and other kind of one‑off spending but clearly, when you’ve got higher interest rates and you’ve got the economy slowing, that impacts different parts of Australia disproportionately. We’ve talked about that on other occasions here in this room.
In New South Wales and especially Sydney there is a lot of mortgage pressure, and no doubt that plays out in how we think about consumption and some of these other measures. So a slowing economy, higher interest rates, all of these things impact differently around Australia. We know the impact in aggregate terms, we have a bit of a sense from these National Accounts about what that means state by state, and I think it just tells us what we already knew, is that different people are doing it tougher depending on what their personal circumstances are.
JOURNALIST:
Treasurer, you’ve previously spoken about the five spending pressures on the budget. Given the environment we’re now heading to in this next budget, how much is paying down interest and debt going to be a priority for this budget? And just to follow up on the Greens’ housing policy, is that something the government is considering, is looking at?
CHALMERS:
Not something we’ve been looking at, no. And I apologise to your colleague to your right – I didn’t mean to ignore that part of it, Eliza, so let me do it in reverse order and you can remind me of the first one in a sec.
When it comes to the Greens’ policy, I obviously haven’t gone through it in any detail – and it sounds like neither have the Greens. I’ve seen that somebody has already described it as a very expensive and arbitrary lottery. I’ve seen that the PBO itself said that it was highly uncertain. I think one of Michael’s colleagues might have called it a pretend policy in a column filed earlier today. I think this is consistent with how the Greens go about things. It’s easy enough for them to write press releases with big numbers attached to it. They never have to implement anything and they never have to make anything add up and they quite frequently promise tens of billions of dollars for all kinds of causes because they know that they don’t have to make it all add up at the end of the day.
We’ve got a broad and ambitious housing policy, we’ve got something like 17 different initiatives, we are investing tens of billions of dollars, and if the Greens really cared about housing affordability, they'd stop running interference in the Senate on our housing policies. If they really cared about housing affordability, they’d vote for our Help to Buy Scheme which is before the parliament. I think this is a Greens party which talk a big game when it comes to housing but when the time comes to vote for more housing in the Senate, they go missing.
JOURNALIST:
Just on the first question: how much is paying down interest on government debt a priority in this budget?
CHALMERS:
Responsible economic management is always defining characteristic of how we approach the budget and how we approach the economy and a big part of that to here and a big part of that from here will be trying to get a handle on this trillion dollars of Liberal debt that we inherited, because, as you rightly pointed out in your question a moment ago – debt interest is one of fastest growing costs on the budget. We can all think of better ways to invest money than using it to service the interest on that debt that we inherited, so it will always be a priority to try and get it down.
A bit like my answer to the earlier question, we wouldn’t have got anywhere near a surplus in that first year were it not for the approach we took. We wouldn’t be anywhere near a second one were it not for the responsible approach that we took. You should expect us to continue to take the most responsible approach that we can, whether it’s the $50 billion of savings that we found, the modest but meaningful tax changes, the banking upward revisions to revenue, all of these things have meant the budget is in much better condition than what we inherited and that will save us on interest into the medium term.
JOURNALIST:
Treasurer, do you think it's appropriate for Minister Burke to spend $57,000 on a four‑day trip to the US? And if Ministers are taking these expensive trips, should they be disclosing what they're doing in their Ministerial diaries?
CHALMERS:
Look, I don't pour over the declarations made by other Ministers, to be frank. I saw that there was a story in the paper about it. I didn't dwell on it. It's for individual Ministers to disclose and defend the disclosures that they make. I'm sure every Minister does what they can to get value for money when it comes to these international engagements. I'm sure that's the approach that Tony's taken.
JOURNALIST:
Do you think Australians looking at some of those figures would really be wondering if it's worth their money when they're doing it so tough right now?
CHALMERS:
I think they get value for money from this government and one of the reasons why our economic plan has helped meet some of our economic objectives is because international engagement has been an important part of that. You hear me talk a lot about the three Rs – relief, repair and reform. But engagement in the region and engagement with the US and others. The fourth R is region – making sure that we're engaged with the Americans and with other friends and with people closer to home, like is happening in ASEAN today in Melbourne. These are all important things that I think people expect governments to do and to do well.
JOURNALIST:
Treasurer, on the productivity aspect of the National Accounts, it's increased for two consecutive quarters, as you mentioned ‑
CHALMERS:
I noticed that too ‑
JOURNALIST:
There's been a lot spoken about interpreting these figures and the impact of the pandemic and how that's influencing the reading. How do you view these results and is there some of getting back to normal?
CHALMERS:
Look, I don't want to get carried away. I'd rather see two consecutive quarters of productivity growth than another two quarters of productivity falling, but I'm pretty realistic about it. In a long‑standing way, we've been in a halt when it comes to productivity growth. Our economy is not anywhere near productive enough, that's why we're so focused on the energy transformation and data and digital and human capital, because we've got to turn that around over time. And a couple of encouraging quarters don't turn around a couple of disappointing decades and so I really see it from that perspective.
JOURNALIST:
Treasurer, 2023 was a pretty tough year for a lot of households and the economy grew by about one and a half per cent. But once you factor in population growth, migration you know, per person has gone backwards by about one per cent. In each of the quarters, growth slowed. So, by the time we reach the end of the year, that's 0.2 per cent. Now, when you look at it, do you think we're at a low point now for the economy? Do you think growth has slowed as much as you – as it will? And do you think Australians can expect a better year in 2024?
CHALMERS:
A bit like the answer to Rachel's question when she kicked us off earlier – the Treasury forecasts have the Australian economy continuing to grow, but quite slowly. And again, we are realistic about that. We're upfront about that. I'm not going to make a prediction about a quarterly figure that we won't get until the first week of June but the Treasury has been upfront with its forecasts, and I've been upfront in discussing them, in saying this is a difficult time for our economy.
You've got all of that global economic uncertainty. Japan and the UK finished last year in recession. A number of other G20 countries have got very slow growth. You combine that with the impact of all these interest rate rises – don't forget in this quarter that we're talking about the December quarter, we had a rate rise in the middle of it and those rate rises began all the way before the election and continued after. And of course, they're going to have an impact on our economy and we're seeing that and that's why I think the situation you described with the quarterly profile, that's why we've got that. It remains to be seen when we see faster growth in our economy, we'd like to see it before long, but we're realistic about that too. To say again how I started, even weak growth is welcome growth in the circumstances. You all saw the market forecasts over the last week or so. You all probably had the similar reaction to the inventories number that I had, those of you who watch it closely. And so I think even slow growth is significant growth, given everything that's coming at us from around the world and all the impact of these rate rises.
JOURNALIST:
Thanks, Treasurer. As the balance shifts from dealing with inflation towards dealing with growth, what are some areas in the budget that you can spend money with that will inspire growth without risking inflation rising?
CHALMERS:
I think that's a great question to finish on. First of all, it's not mission accomplished on inflation. I don't want to give you the impression that we think we go from dealing with one kind of problem and kind of lurch completely to dealing with another kind of a problem. What I'm trying to convey is that the balance of risks is shifting in our economy from what was almost a sole focus on inflation, successful focus, seeing the way that inflation is moderating, and now we're in kind of trickier terrain when it comes to balancing those pressures in our economy.
The degree of difficulty in the third budget is different to the degree of difficulty in the first two. When it comes to how do we grow our economy – and again, in the first couple of budgets, we had a number of initiatives which were all about growth, laying the foundations for growth. You know that we are enthusiastic investors in the energy transformation, for example and that's going to be a huge part of the story. You know that we're enthusiastic investors in human capital, whether it's skills, we've got some more work to do on Jason's University Accord as well that will have a role to play. You know that we're particularly focused on the care economy – we think the care economy combined with some of these other industries is the hope of the side when it comes to the future economy. And so we know what we need to do broadly to lay the foundations for growth in our economy at the same time as we help people through these cost of living pressures and at the same time as we repair our budget. And again, in the first couple of budgets, I'm really quite pleased with how we calibrated all of those tasks and we will be called upon again in the third budget to strike those series of fine balances but we see from this number today, particularly the GDP, but a lot of the partial indicators as well, we’ve got a growth challenge as well as an inflation challenge, and we need to be just as diligent and just as successful when it comes to dealing with the growth challenge as we have been so far, touch wood, when it comes to the inflation challenge.
Thanks very much.